The good buyout guide

MANAGEMENT buyouts may be the route to potential riches, but the rewards won't arrive overnight. The deal process can be arduous and time-consuming, involving the seller, the buyout team, lawyers, bankers and accountants.

And while negotiations are in progress, there are two golden rules - don't neglect the day-to-day running of the business and keep the details confidential.

Rob Donaldson at accountant Baker Tilly guides buyout teams. He says: 'The process usually takes between six months and a year and it is important that managers keep their focus on the enterprise.'

Funders want evidence that the business model is strong and will continue. Customers and suppliers might become nervous about upheaval or new management and take their business elsewhere.

A buyout team should protect confidential details and not talk about a proposed deal with anyone outside the management team. And telling staff in the early stages could simply cause anxiety and upset.

Andrew Stevens of Lloyds TSB Corporate says: 'It comes back to the quality of the management. Is it a strong, united team? Do they understand the business and are they passionate about it? And is everyone in agreement about their role, equity share and how they want to take the business forward?'

The benefits of a buyout can be strong for both employees and managers, creating continuity for everyone. But the new management should be clear how it intends to handle issues such as pensions and job security. It must be prepared to discuss these topics with staff if it wants to retain a loyal and motivated workforce.

David Garvey was part of the management buyout team that took on the loss-making Associated Perforators & Weavers at Warrington, Cheshire, three years ago.

Garvey, 41, now the finance director, says: 'The staff were naturally apprehensive because we couldn't give them any details, but as soon as possible after the event, we fully engaged them in the plans and the atmosphere lifted from day one.

'Ownership does change your perspective. You have to inspire people in the organisation, especially your middle managers, because without them the enterprise just won't work.'

The business plan included a £750,000 investment in plant and equipment and the shelving of several product lines that were not contributing to profits. The firm has a staff of 47, an annual turnover of £4.5m and has produced an operating profit every year since the buyout.

Donaldson says: 'Virtually any business can be the subject of a management buyout. As long as the price is right and the team is committed and works well together, it can be a quick and reasonably low-risk way to make money.'